FOREX-Euro falls on ECB rate cut talk; yen slips before G20
* Weidmann says ECB may cut rates if economy weakens-WSJ report
* G20 meeting seen unlikely to criticize BOJ policy
* Canada dollar slumps after BoC cuts growth forecast
By Wanfeng Zhou
NEW YORK, April 17 (Reuters) - The euro tumbled against the dollar and yen on Wednesday after comments from a European Central Bank official stoked speculation of an interest rate cut in the euro zone.
The yen slipped against the dollar a day before officials from the Group of 20 economies meet in Washington. Analysts said recent comments from G20 officials suggest the group as a whole will not criticize Japan's aggressive monetary easing that has triggered a sharp slide in its currency.
The ECB could lower interest rates further if economic data so warrants, ECB Governing Council member Jens Weidmann was quoted by The Wall Street Journal as saying on Wednesday.
"The ECB is a central bank that likes to prepare the market for any potential changes in monetary policy and that is why Weidmann's comments are so important because it could be the first of many to follow," said Kathy Lien, managing director at BK Asset Management in New York.
The euro earlier came under pressure after a media report cited former member of the ECB Executive Board Lorenzo Bini Smaghi as saying the central bank should find ways to stop the euro from gaining.
The euro fell 1 percent to $1.3052, retreating from a seven-week high of $1.3201. Against the yen, it fell 0.6 percent to 127.69 yen, reversing early gains and moving further away from a more than three-year high of 131.11 yen.
Ashraf Laidi, chief global strategist at City Index Ltd in London, said he does "not expect the ECB to resort to slashing its refinancing rate as it is not only ineffective, but would produce negative interest rates."
Still, he said the sharp market reaction highlights "that the euro's biggest risk factor remains that of a rate cut and not political uncertainty in Italy, austerity in Portugal or the threat of taxing deposits in the euro zone."
Support for euro/dollar lies around $1.3020, traders said, while a break could open the door for a decline toward $1.30 and $1.29.
The ECB decided to leave interest rates on hold at its April policy meeting, but ECB President Mario Draghi said the bank would "monitor very closely" all data and stands "ready to act" to boost the recession-hit euro zone.
Recent economic data has underscored a challenging outlook for the euro zone economy. Inflation in the bloc eased further in March, while investor sentiment in Germany, the euro zone's largest economy, fell sharply in April.
STERLING, LOONIE TUMBLE
The dollar rose 0.3 percent to 97.80 yen, although it remained well below the four-year high of 99.94 yen set on Reuters data last week.
"Dollar/yen has moved a bit higher, trying to hold the 98 level, as traders now expect that the G20 meeting later this week will not be as 'difficult' for the Japanese delegation as first suspected," said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.
"Most predictions for the dollar/yen still expect a test of the 105.00 level by mid-summer as 'Abenomics' continues in Japan," he said, referring to Japan's new push to ease monetary policy under Prime Minister Shinzo Abe.
Many analysts believe that the abundance of global liquidity due to monetary easing in Japan and the United States will also lead to further weakness in the yen as Japan's domestic investors look to use it to buy overseas assets with better returns.
Investors will be watching for the weekly flows data from Japan's Ministry of Finance due out on Thursday, currency strategists at Brown Brothers Harriman wrote to clients.
"Markets were disappointed that last week's Ministry of Finance data showed that Japanese investors were not only net sellers of foreign bonds, but they sold the most in a year," they said.
The Canadian dollar tumbled after the Bank of Canada cut its growth forecast and left interest rates unchanged. The U.S. currency rose 0.6 percent to C$1.0258.
Sterling fell against the dollar, hurt by data showing weak wage growth and a rise in unemployment, which added to concerns about Britain's fragile economic outlook. The pound was last at $1.5253, down 0.7 percent on the day.
Sterling had also fallen to a one-month low against the euro , before recovering as the euro came under pressure on Weidmann's comments. The euro was last down 0.3 percent at 85.53 pence, having risen as high as 86.37 pence.